Another reminder of how brutal retail can be.

Adairs today guided to essentially flat underlying EBIT for FY25 (at the midpoint), with a decent uplift at Adairs and Mocka offset by further deterioration at Focus on Furniture.

Sales at Adairs and Mocka are expected to grow 9% and 14%, respectively, with EBIT in those segments up 21% and 18%. That’s a decent result on paper.. though worth noting Adairs has been discounting heavily, with gross margin dropping from 9.3% in 1H to 6.8% in 2H. Adairs accounts for 70% of group sales and 60% of group EBIT, so it's really the thing to watch.

Focus, though, is the drag. Sales are expected to fall nearly 10% in the second half (after a 4% decline in the first), with EBIT down 34% for the year. The store format refresh continues, and capex has already been bumped up to as much as $18m in FY25.

The stock dropped as much as 30% on the news initially, and is still down over 20%.

It’s now basically back to where I sold my (thankfully small) position last year. Even with the forward PE around 10–11x, my inner bargain hunter isn't biting. Retail is just too variable -- and the operating leverage that magnifies profits when things are good works just as brutally in reverse.

If they can grow sales without leaning on discounts, and the multiple stays low… maybe. But I doubt it.

ASX announcement is here